Principles of Blue Ocean Strategy
Principles of Blue Ocean Strategy are the six main principles that guide companies through the formulation and execution of their Blue Ocean Strategy in a systematic risk minimizing and opportunity maximizing manner.
The first four principles address Blue Ocean Strategy formulation:
1. Reconstruct market boundaries. This principle identifies the paths by which managers can systematically create uncontested market space across diverse industry domains, hence attenuating search risk. It teaches companies how to make the competition irrelevant by looking across the six conventional boundaries of competition to open up commercially important blue oceans. The six paths focus on looking across alternative industries, across strategic groups, across buyer groups, across complementary product and service offerings, across the functional-emotional orientation of an industry, and even across time.
2. Focus on the big picture, not the numbers. Illustrates how to design a company’s strategic planning process to go beyond incremental improvements to create value innovations. It presents an alternative to the existing strategic planning process, which is often criticized as a number-crunching exercise that keeps companies locked into making incremental improvements. This principle tackles planning risk. Using a visualizing approach that drives managers to focus on the big picture rather than to be submerged in numbers and jargon, this principle proposes a four-step planning process whereby you can build a strategy that creates and captures blue ocean opportunities.
3. Reach beyond existing demand. To create the greatest market of new demand, managers must challenge the conventional practice of aiming for finer segmentation to better meet existing customer preferences. This practice often results in increasingly small target markets. Instead, this principle shows how to aggregate demand, not by focusing on the differences that separate customers but by building on the powerful commonalities across noncustomers to maximize the size of the blue ocean being created and new demand being unlocked, hence minimizing scale risk.
4. Get the strategic sequence right. This principle ensures companies not only create a leap in value to the mass of buyers but also to build a viable business model to produce and maintain profitable growth. In ensuring that companies build a business model that profits from the blue ocean they have created, it addresses business model risk. This principle articulates the sequence in which managers should create a strategy to ensure that both their company and their customers win as they create new business terrain. Such a strategy follows the sequence of utility, price, cost, and adoption.
The remaining two principles address the execution risks of Blue Ocean Strategy.
5. Overcome key organizational hurdles. Tipping point leadership shows managers how to mobilize an organization to overcome the key organizational hurdles that block the implementation of a blue ocean strategy. This principle deals with organizational risk. It lays out how leaders and managers alike can surmount the cognitive, resource, motivational, and political hurdles in spite of limited time and resources in executing blue ocean strategy.
6. Build execution into strategy. By integrating execution into strategy making, people are motivated to act on and execute a blue ocean strategy in a sustained way deep in an organization. This principle introduces, what Kim & Mauborgne call, fair process. Because a blue ocean strategy perforce represents a departure from the status quo, fair process is required to facilitate both strategy making and execution by mobilizing people for the voluntary cooperation needed to execute blue ocean strategy. It deals with management risk associated with people’s attitudes and behaviors.